COC IDA research note 10-20-08.pdf

Please refer to pages 2-3 of this report for detailed disclosure and certification information.
RESEARCH NOTE
Institutional Equity Research

IDACORP, INC.
October 20, 2008 IDA – NYSE

Rating:
BUY

Price: (10/20/08) $25.64

Price Targets:
12-18 month: $31 ↓
5-year: $37 ↓

Industry:
Utilities

James L. Bellessa, Jr., CFA
406.791.7230
[e-mail]

Power Cost Adjustment Methodology Changes Proposed to Regulators.
Lowering Target Price for Reduced Utility Valuations.

• An all-parties stipulation signed. Following a workshop process to evaluate
various aspects of Idaho Power’s power cost adjustment (PCA) mechanism, an
all-parties stipulated agreement has been filed with the Idaho Public Utilities
Commission (IPUC) to revise five of six aspects of the PCA that have been under
review.
• If approved, stipulation should reduce EPS variability. We believe the five
proposed PCA revisions are likely to be approved as fair and reasonable
compromises by the IPUC under the Commission’s modified procedures without
hearing. Furthermore, we believe the revisions’ overall impact will further
mitigate, but not entirely eliminate, the impact on annual earnings from the
variability in power supply expenses inherent in the company’s hydro generation
system. Additionally, the changes should increase the chance for the utility to
earn its authorized rate of return, which has been next to impossible in recent
years due to sustained below-average streamflows and system-wide increases in
electric demand.
• Five PCA components would change if stipulation is approved. The five
agreed-to items relate to methodologies for: 1) PCA sharing (a sharing ratio of
95% customers and 5% shareholders instead of the long-standing 90/10 sharing
ratio); 2) load growth adjustment rate (LGAR) setting (a formula which would
produce a rate of $28.14 per MWh instead of the last LGAR reset of $62.79 per
MWh); 3) forecasting new power supply expenses (use of the company’s
comprehensive operation plan forecast instead of the historically-used April to
July Brownlee Reservoir inflows projection provided by the National Weather
Service’s Northwest River Forecast Center); 4) including third party transmission
expenses; and 5) distributing annual base net power supply expenses (based upon
the monthly shape of normalized revenues rather than the simplistic use of a
distribution of 1/12 of the annual expense per month). The parties have agreed
that the sixth issue, relating to rate spread and revenue allocation methods for the
PCA, will be re-examined after the conclusion of Idaho Power’s current general
rate case expected to be finalized by February 2009.
• Earnings estimates remain unchanged. We are maintaining our 2008 EPS
estimate of $2.12, as none of the proposed changes will become effective this
year, except the 95/5 PCA sharing ratio, which would become effective on the
first day of the month following IPUC approval of the stipulation. For the time
being, our 2009 EPS estimate of $2.27 remains unchanged.
• Reducing target price. We are lowering our 12-18 month target price from $34
to $31, or approximately 13.7x our 2009 EPS estimate, to adjust to the utility
sector’s overall lower valuation seen so far in October’s market crash.
D.A. Davidson & Co.
Two Centerpointe Drive, Suite 400 • Lake Oswego, Oregon 97035 • [phone] • [phone] • www.dadavidson.com
Copyright D.A. Davidson & Co., 2008. All rights reserved.
2
Required Disclosures
D.A. Davidson & Co. expects to receive, or intends to seek, compensation for investment banking services from this company in the
next three months.
D.A. Davidson & Co. is a full service investment firm that provides both brokerage and investment banking services. James L.
Bellessa, Jr., CFA, the research analyst principally responsible for the preparation of this report, will receive compensation that is
based upon (among other factors) D.A. Davidson & Co.’s investment banking revenue. However, D.A. Davidson & Co.’s analysts are
not directly compensated for involvement in specific investment banking transactions.
I, James L. Bellessa, Jr., CFA, attest that (i) all the views expressed in this research report accurately reflect my personal views about
the common stock of the subject company, and (ii) no part of my compensation was, is, or will be, directly or indirectly, related to the
specific recommendations or views expressed in this report.

Ratings Information

D.A. Davidson & Co. Ratings Buy Neutral Underperform
Risk adjusted return potential Over 15% total return
expected on a risk adjusted
basis over next 12-18 months
>0-15% return potential
on a risk adjusted basis
over next 12-18 months
Likely to remain flat or lose
value on a risk adjusted basis
over next 12-18 months
Distribution of Ratings (as of 9/30/08) Buy Hold Sell
Corresponding Institutional Research Ratings Buy Neutral Underperform
and Distribution 44% 52% 4%
Corresponding Private Client Research Ratings Outperform Market Perform Underperform
and Distribution 81% 19% 0%
Distribution of Combined Ratings 47% 49% 4%
Distribution of companies from whom D.A. Davidson & Co. has received compensation for investment banking services in last 12 mos.
Institutional Coverage 4% 6% 0%
Private Client Coverage 0% 0% 0%
Distribution of Combined Investment Banking 4% 5% 0%

D.A. Davidson & Co.’s Institutional Research Rating Scale (maintained since 7/9/02): Buy, Neutral, Underperform
D.A. Davidson & Co.
Two Centerpointe Drive, Suite 400 • Lake Oswego, Oregon 97035 • [phone] • [phone] • www.dadavidson.com
Copyright D.A. Davidson & Co., 2008. All rights reserved.
3
Target prices are our Institutional Research Department’s evaluation of price potential over the next 12-18 months and 5 years, based
upon our assessment of future earnings and cash flow, comparable company valuations, growth prospects and other financial criteria.
Certain risks may impede achievement of these price targets including, but not limited to, broader market and macroeconomic
fluctuations and unforeseen changes in the subject company’s fundamentals or business trends.

Other Disclosures

Information contained herein has been obtained by sources we consider reliable, but is not guaranteed and we are not soliciting any
action based upon it. Any opinions expressed are based on our interpretation of data available to us at the time of the original
publication of the report. These opinions are subject to change at any time without notice. Investors must bear in mind that inherent
in investments are the risks of fluctuating prices and the uncertainties of dividends, rates of return and yield. Investors should also
remember that past performance is not necessarily an indicator of future performance and D.A. Davidson & Co. makes no guarantee,
express or implied, as to future performance. Investors should note this report was prepared by D.A. Davidson & Co.’s Institutional
Research Department for distribution to D.A. Davidson & Co.’s institutional investor clients and assumes a certain level of investment
sophistication on the part of the recipient. Readers, who are not institutional investors or other market professionals, should seek the
advice of their individual investment advisor for an explanation of this report’s contents, and should always seek such advisor’s advice
before making any investment decisions. Further information and elaboration will be furnished upon request.